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Can new Future CEO end 15 years of boom & bust?

The UK-based magazine-media group Future Plc is never far from the news. It was started 29 years ago in the sleepily stylish south-west city of Bath by Chris Anderson – now leader of the TED conference – and built a reputation for premium-priced computer games magazines, cover-mounted discs, and media domination of the console boom through “official” publications on behalf of Sony, Microsoft and Nintendo.

Anderson was quick to capitalise on the worldwide market for specialist magazine content. As a result, Future now exports or syndicates more than 220 publications to 90 countries. It is the UK’s largest exporter of magazine content and probably the world’s largest publisher of tablet editions. And global web sites like TechRadar, BikeRadar, MusicRadar, and GamesRadar attract almost 60 million monthly unique users.

This global content for gamers, cyclists, guitarists, techies, and craft enthusiasts is at the heart of the vibrant 1,000-person company with more than 200 magazines, events and digital services. In many ways, it feels as if this relatively small company’s longtime preoccupation equally with technology and content has found its time, as magazine companies everywhere fight for their future.

Future’s T3 gadget mag is now 50% digital and has more than 30 worldwide editions

With its FutureFolio app-creation software, the publisher was an early leader in iPad editions and now produces over 100 digital versions of magazines like T3, Guitarist, Cycling Plus, PC Gamer, and Total Film. It has sold over 5 million digital issues in the past year. Digital revenues now account for 60% of all revenues. Its games video channels are racking up more than 6 million monthly views on YouTube, and its Grand Theft Auto games videos generated a stunning 20 millionviews in 2013.

Future has been UK Consumer Digital Publisher of the Year for the past three years, PPA Digital Publisher of the Year for two, and is the British Media Awards Company of the Year. This is the company which sometimes seems, single-handedly, to be leading magazine groups to the digital promised land.

But the products and prizes are only half the story.

Last month, Future announced the resignation of CEO Mark Wood after less than three years in charge. Chief Finance Officer Zillah Byng-Maddick, who joined Future only six months ago, became its fourth boss since 2005. In those eight years, pre-tax profits have fallen by almost 75% to £3m – and may be wiped out completely in 2014.

Future is a victim of the 21st century magazine publishers’ curse: shrinking readership and advertising revenues – exacerbated by increasing (but tough to monetize) digital investment. In addition, it has been hurt by the erosion of once high-margin profits from games magazines selling for up to £6 with cover-mounted ‘demo’ discs. Such discs had once been a uniquely attractive way for millions of gamers to ‘try before buying’ video games costing more than 10 times the magazine price.

Games go online

Today, those same games demonstrations are available online, and there’s also plenty of hard copy and digital competition. It’s a big change from the early years of Sony’s Playstation console when Future’s “official” magazine alone made as much profit as the whole company has been struggling to achieve in recent years.

The outgoing CEO’s profit warning had sent the company’s market value crashing to £20m – a reduction of two-thirds in 12 months. It was the latest financial crisis in a roller-coaster ride that began with Future’s IPO in 1999. It was almost the peak of a tech bubble that inflated the “new” company’s value to almost £1bn – even though it was loss-making. In 2001, the bubble burst and the shares collapsed, prompting Chris Anderson’s departure. But things happen quickly at Future and, by the following year, it was powering forward again, with profits of £18.5m.

Four years further on, longtime CEO Greg Ingham was the next casualty as 2005 profits fell by 47% to £12.5m on the back of the disastrous £30m purchase of 38 mostly loss-making magazines from the collapsed Highbury House Communications.

Ingham was succeeded by Stevie Spring whose five-year spell as CEO also ended abruptly, in 2011, when profits crashed by 55% to £3.7m. Former TV news executive Wood, who had been a non-executive director, briefly took charge. Until last month, when he stepped back to being a non-executive.

From a kitchen table

This crisis-hit public company is worlds away from the one Anderson founded after graduating from Oxford University, turning to journalism and becoming passionate about the 1980s craze for computer games and technology.

The missionary’s son had launched a first magazine Amstrad Action from his kitchen table. By 1985, he had founded Future Publishing with a £15,000 bank loan. For the next seven years, the fledgling company doubled its turnover, profit and number of employees every single year. It was an exciting ride as the business graduated from the kitchen to a converted country barn and then to a string of converted houses dotted round the centre of picturesque Bath. These were boom times for magazines and for computer games. And, from pre-internet days, Anderson neatly made his magazines interactive: most had cover-mounted CDs and disks to help readers develop their skills, try-out computer games and play the music they were reading about. Future described itself (then as now) as “media with passion”.

Anderson’s 1985 magazine debut

In 1993, along came the mighty Pearson (publisher of the Financial Times and much else) to buy the company for a cool £52.5m. Anderson banked the cheque, moved west and set about creating a similar business in San Francisco. There, his Imagine Media took the US magazine market by storm – in the very years when an even more successful UK magazines group EMAP had begun what became a nine-year death spiral after its disastrous $1.5bn acquisition of the over-cooked Petersen group.

In 1998 – when EMAP was still celebrating its fateful entry into the US market – Pearson lost its passion for Future. It was sold on to private equity firm APAX – and Chris Anderson, who again became chairman.

The US and UK companies were brought together and floated excitedly on the London Stock Exchange in 1999, as media stocks limbered up for the first dotcom boom.

The quietly-spoken Anderson was an unlikely international media tycoon but demonstrated a sure touch by launching Business 2.0, a business magazine for the ‘new economy’. It really was a shooting star and – briefly – one of the fastest growing magazines in the US, notching up 2,000 pages of advertising in its first year.

It is difficult to over-state the new magazine’s impact. In two years, copy sales doubled to 210,000 which propelled a 575% increase in advertising pages from March 1999 to March 2000, as the country’s most talked-about publication moved up from monthly to fortnightly. It was like rocket fuel for the IPO of what was then known as Future Network. Subsidiaries were established in France, Germany, Poland, and Italy – as it prepared for Business 2.0’s conquest of Europe.

Millennium thrills

Stockmarket analysts were euphoric about a media company which seemed to symbolise the technological promise of the new millennium. They applauded the buzzing production line of sparky, new computer games and tech magazines, and web sites. They stamped their feet at the international expansion. And they loudly cheered the ‘reinvested’ profits (ie losses) of the snowballing growth.

Future peaked at more than 100 tech-driven magazines in six countries selling 5m copies every month, with some 2,000 employees. Turnover hit £250m as the Playstation generation made Future and its founder rich. But it was all too good to be true. At the height of the boom, Chris Anderson’s private equity partner escaped with its ramped-up winnings – and left him to face the bust.

No sooner had the fog cleared on the ‘millennium bug’ (remember that?), than investors turned angrily on the dotcom “growth-is-more-important-than-profit” companies they had once worshipped. Future really was a reasonably traditional magazine publisher, albeit an ambitious one led by an internet visionary. But its revenues, which had jumped from £174m to £254m in 2000, promptly fell back to 1999 levels, while forecasts of a profit breakthrough melted into nothing more than increased losses.

The crash

Much of the company’s post-1999 expansion was turning sour. It suddenly faced shareholder demands for short-term profits to replace the once-vaunted promise only of revenue growth. Its share price collapsed, along with magazine sales, investor confidence, and bank covenants. Only debt was rising. The stricken company whose value had scaled the heights of £1bn now struggled to reach £25m. And even the once-golden Business 2.0 magazine was suddenly spinning backwards.

The ‘shooting star’ that saved Future

Anderson, as the largest private shareholder, was rocked by the crisis. And so was media industry heiress Elisabeth Murdoch who had become a feted non-executive director just in time to find herself held hostage by the financial pundits – and pictured with almost every Future newspaper story – as she waited impatiently for the chance to abandon ship.

For the company’s founder, though, many things were more important than a ‘lost’ paper fortune from shares that had crashed. He was the pained chairman of a hometown company forced to lay-off hundreds of longtime friends and colleagues merely to survive.

It was a bloody 2001 as Anderson was left to rue the day he had befriended private equity and the voracious stock market. Banks were threatening bankruptcy as the company which had built a reputation on launching new magazines by young enthusiasts for young enthusiasts, was forced to spend a year dumping them.

Few expected Future to survive. But somehow it did.

The rescuing cavalry was the cash-rich Time Warner which – two years after its disastrous 2000 ‘new economy’ merger with AOL – paid a life-saving $68m for the suddenly-lossmaking US edition of Business 2.0.It was too ironic that Future was rescued by the US company that itself remains the most spectacular victim of dotcom hubris.

Back to California

Having completed the rescue, the founder made an emotional exit armed with the fledgling International Games Network (later sold to News Corp) and an idiosyncratic California conference called TED which the departing chairman’s chastened Board colleagues were relieved to offload to him for 40% of what they had paid the year before. Anderson acquired TED through his non-profit Sapling Foundation, which he had established in 1996 loftily ”to find new ways of tackling tough global issues by leveraging media, technology, entrepreneurship and ideas.” We were going to hear much more about that.

But, after the pain of redundancies and cost-cutting, Future characteristically bounced back, in 2003 and 2004, to higher profits than the company had seen before – or since. And there hangs a story. Profits during 2002-2008 were £11-24m annually. But they have not exceeded £8m since 2008, and have been under £5m for each of the past three years. And, even in boom time, Future seldom achieved profit margins above 10%, by contrast with UK magazine leaders which then averaged almost double that.

This relative under-performance was due principally to rising overheads and to the expensively fragmented magazine portfolio. Even now, Future publishes more than 60 magazines in the UK, many of which sell fewer than 10,000 newsstand copies and are only marginally profitable, if at all. Some of those small magazines and web sites will have no real growth prospects and may even be cannibalising the company’s own media channels.

It is tempting to conclude that these tiny brands merely add to the clutter of a company which – to say the least – has plenty of great things going for it. Future may just be trying to do too much. An increased focus could be expected to make the company more manageable – and more consistently profitable.

The company’s longterm strengths are as a high-quality producer of enthusiast magazines and now a well above-average producer of web editions and a world-class operator of the high-traffic ‘radar’ web sites, along with undoubted flair for international content licensing. The technology reviews site TechRadar – with 20m+ monthly uniques and editorial teams in the UK, US, Australia and India – is fast-becoming the most successful operation of its kind, and may alone be worth more than the company’s current valuation.

So, what keeps going wrong?

Well, the familiar trials of small cyclical companies on major stock markets are often related to the need for quarterly reporting, the management of investor expectations, and steady profit growth – especially challenging with the requirement to invest in digital transformation. That’s been a bit of a problem for Future for most of the past 15 years. But, it has been much more than that. Part of the answer lies in the dedicated teams of enthusiasts passionately producing lively content for people like themselves. Their efforts might just belong in the cottage-industry company Chris Anderson started. At a time when magazine publishers large and small are waking up to the vanishing economies of scale that traditionally justified their existence, there is an obvious temptation – as in some B2B media sectors too – for individual specialist markets to be served by, well, specialists.

Too ambitious?

Perhaps Future has just been too ambitious. Its best profits were, after all, made in the volatile and highly cyclical times when “official” console games magazines were flying off news-stand shelves with dizzy cover prices. And the UK new stands, which were a hugely profitable quick way to increase copy sales in good times, have unfortunately proved just as responsive now sales are falling.

Future has always seemed to be a sparky company that – in total – was better with the vision, content and creativity than with the serious business of making money. Successive, accomplished CEOs have thoroughly understood media, exuded passion to match their enthusiastic editors and confidently extolled the virtues of ‘prosumers’ (consumers with the must-have dedication of professionals) and specialist audiences prepared to pay much higher prices for their magazines. But the need for sustained profitability has consistently got lost in translation. The company has seemed curiously under-managed.

Enough of the passion, but where’s the profit?

Another answer may lie in Future’s perpetual attempts to be a large-scale global player more than a mere licensor of its content and brands outside the UK. Its first financial crisis in 2001 was directly due to such misplaced international ambition.

This was a company whose emphasis on the transferability of its content seemed to blind it to the not-insignificant challenges of managing businesses in a range of unfamiliar publishing markets, including France, Germany, Italy, and Poland. The very reason for Future’s early success in licensing its magazines to established foreign publishers was also the reason for its failure as a “domestic” operator in country after country. And, to draw the story back to EMAP, you only have to look to the US for the lessons that Future has consistently failed to learn.

Its sub-scale California-based business has been loss-making for four of the past five years and made a paltry £200k in the single year it was profitable. Total US losses across 2009-13 have been some £10m – equivalent to Future’s aggregate profit for the past three years. And, even in its best year in 2005, Future made only £3.8m in the US – less than 20% of the whole company.

The US, which has consistently accounted for 20-30% of all revenues, has simply held back the company’s profitability for most of the last 15 years. But, somehow, that reality has been drowned out by Future’s boasts about its leading share of US news-stands – in a market where such sales are anyway dwarfed by the posted subscriptions favoured overwhelmingly by American magazine readers. British companies, in media as in much else, have a pretty poor track record of transatlantic migration. And Future might be just another casualty of California dreaming.

Future wakes up – again

The signs that it has belatedly faced up to the reality of its dismal US performance came after the new CEO’s appointment. The company confirmed the closure of its American magazines and said all remaining digital services would be operated from the UK – reducing US staffing by one-third.

The cost savings of “fast tracking the US from print to digital” and minimising local resources may, ultimately, be greater still. Although the US announcement was curiously similar to one made two years ago by the previous CEO, you have to assume that Future has now woken up.

Once Zillah Byng-Maddick has brought the depressing financials under control – and presumably spun-off a bunch of colourful but marginal brands – she could do worse than become acquainted with F & W Media, a special interest US publisher organized around some 20 community-based units including crafts, writing, fine arts, design, and sports – and which has just established an Anglo-American crafts joint venture with the privately-owned Burda media group, of Germany.

F&W (whose name derives from “farmers and writers”, its first sectors) publishes some 50 magazines and 3,800 eBooks. The 100-year-old company had its own problems after being acquired by private equity in 2005. But it has since become the stand-out example of specialist media generating profits from e-commerce revenues, that have reached $50m in five years.

CEO David Nussbaum says: “We’re offering content written specifically to drive product sales, marketing targeted to our print readers, and incentives to enable online transactions. Our print vehicles also serve as a showcase or catalog for our product portfolio. Our subscribers are our best customers, meaning they transact more frequently than the general audience and generate a great deal more incremental revenue versus non-subscribers. And we own these customers — Amazon doesn’t own them, Apple doesn’t own them. These are our customers. These are our gold.”

Quite an inspiration for Future, which has recently closed its own first serious step into e-commerce. “The Making Spot” had brought together content from across its craft portfolio (knitting, stitching and making stuff) to offer readers: “thousands of projects and patterns, including both free and paid-for downloads, to inspire and excite.” The venture lasted less than two years. But Future’s CEO may now be as keen as her magazine industry peers to explore the real potential of e-commerce. And discussion with F&W about online retailing in their shared craft or genealogy sectors might be a good place to start.

De-cluttering Future and restoring its profitability, margins and growth prospects represents a sizeable challenge even for the estimable new CEO. The Glasgow-born Ms Byng-Maddick started out as a graduate trainee at Nestle and has had a variety of senior roles in consumer businesses ranging from wine, through books, music, and fitness.

Byng-Maddick’s quiet revolution is underway at Future

More recently, she was Chief Financial Officer of Trader Media Group (the UK’s leading online classified publisher) serving latterly as interim CEO where she was in the thick of one of the most successful digital transformations. And she has also been a non-executive of online gaming operator Betfair and European newspaper group Mecom.

Colleagues draw attention to her university studies in psychology, IT, coaching and behavioural change to explain why she’s great with people and systems – as well as finance. She tells her senior team: “Be brave and set unrealistic goals – because you never know what might happen. Being generative is also very important: find a way to make things better.”

Big cuts ahead

Byng-Maddick’s early moves have calmed her people down after the latest corporate shocks, although the legions of Future lifers are accustomed enough to executive reshuffles. But the new CEO is leaving nobody in any doubt about the tough times ahead as she seeks to end Future’s history of boom and bust. A quiet revolution is underway. “We are absolutely focused on driving a significant reduction in the cost base of the business to deliver sustained margin improvement.” That’s code for: expect a cull of marginal magazines and websites, and further reductions in staff.

The profusion of Future’s iPad editions, disappointing sales and too many small-audience magazines and websites will inevitably prompt cutbacks to free up resources for the best long-term brands. And most expect eventual change in how the company is managed, moving yet further away from the old ways of separate, self-contained magazine teams. There may be more investment in subscriptions and data, and in launching events like the recent Photography Show whose debut attracted 30,000 visitors. And there may be more sponsored media, partnerships and alliances, not least in e-commerce. Perhaps the company will even befriend F&W whose UK operations are located in Devon, 100 miles down the road from Bath.

Investors will support whatever rationalisation write-offs are necessary to re-energize Future, fully aware that its value is underpinned by some particularly valuable assets. TechRadar alone may be worth up to £40m – almost twice the current stock market value of the whole company.

The CEO’s task now is to fulfil potential on three fronts: the digital potential of special interest magazine brands; the long-under-realised potential of Future Plc; and, finally, the potential of 37-year-old Zillah Byng-Maddick herself. Future’s successful transformation could become the launch-pad for her to scale the heights of some of the UK’s largest companies. Whichever way you look, it could be an exciting few years. Perhaps Future will be flying high next year, in time to celebrate its 30th birthday. Or will it?

UPDATE: Game changer or double down on print? : 23 June 2016 (Future Plc announcement)

Future plc has agreed terms to acquire Miura (Holdings) Ltd, the holding company and ultimate parent company of Imagine Publishing Limited for a total price of 179,567,841 new Future shares, equivalent to £14.2m. “The acquisition of Imagine is a further substantial step in Future’s strategy of creating content that connects, increasing scale and improving operational efficiency.” <Imagine is principally a print media business, operating in similar and complementary sectors to Future>

· “The addition of a market leading portfolio in the knowledge & science vertical adding new high quality genres to Future”

· Imagine is expected to report revenue of £16.4m for year to 31 March 2016, with EBITA of £3.1m, margin of 19% and cash generated from operations of £3.4m

· The acquisition is expected to be “materially earnings enhancing” through:

o Significant cost synergies

o Enlarged Group’s profit margins

o Increased cash generation of the enlarged group

· Upon completion of the deal, the vendors of Imagine will own, in aggregate, c.32.8% of Future’s enlarged issued share capital

UPDATE: 21 November 2014

Future reported a £35.4m pre-tax loss for the year ended 30 Sept. 2014, as the embattled publisher revealed it has cut cut 40% of total employees, reducing headcount from 980 to 577. The company reported a 20% decline in revenues, from £82.6m to £66m, as print sales and advertising continued to decline steeply. Print revenues declined by 26% from £52.2m to £38.7m, while digital and diversified revenues fell slightly from £30.4m to £27.3m. Digital advertising at its dominant UK operation represents 63% of total UK ad revenue.

Future raised £23.8m in cash from the sale of its profitable sport and craft brands – including Procycling, What Mountain Bike and The Knitter – to Immediate Media. It also sold its auto titles and Triathlon Plus to Kelsey Publishing for £2.3m. Part of the headcount reduction – about 160 people – is made up of staff moving with the sold magazines. The company said it would now focus on five sectors: technology; games and film; music; photography; and creative.